Asked by Morgan Whittle on Jun 01, 2024
Verified
According to the theory of comparative advantage, specialization and free trade will benefit
A) only that trading party that has both an absolute advantage and a comparative advantage in the production of all goods.
B) all trading parties, even when some are absolutely more efficient producers than others.
C) only that trading party that has an absolute advantage in the production of all goods.
D) only that trading party that has a comparative advantage in the production of all goods.
Comparative Advantage
The capacity of a country or firm to produce a particular good or service at a lower marginal and opportunity cost over another.
Absolute Advantage
The ability of a country or entity to produce a good or service more efficiently (using fewer resources) than another country or entity.
Specialization
Refers to the process of focusing resources on specific activities, tasks, or areas of expertise to increase efficiency and productivity.
- Understand how the theory of comparative advantage underpins productivity and economic relationships.
Verified Answer
ZK
Zybrea KnightJun 06, 2024
Final Answer :
B
Explanation :
The theory of comparative advantage suggests that even if one country is less efficient in producing all goods compared to another country, there can still be benefits from trade. This is because countries should specialize in producing goods for which they have a lower opportunity cost, leading to gains from trade for all parties involved.
Learning Objectives
- Understand how the theory of comparative advantage underpins productivity and economic relationships.